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CGS-CIMB Research raises target price for Pentamaster to RM5.40

TheEdge Fri, Nov 08, 2019 10:28am - 7 months ago

KUALA LUMPUR (Nov 8): CGS-CIMB Research has maintained its “Add” rating on Pentamaster Corp Bhd at RM4.75 with a higher RM5.40 (from RM5.15) and said Pentamaster’s 9M19 core net profit beat house/consensus’ expectations at 74%/75% of FY19F net profit forecasts as the research house expects a stronger earnings delivery in 4Q19.

In a note Nov 7, the research house said Pentamaster posted a RM65 million core net profit in 9M19 against RM38.3 million in 9M18. 9M19 core net profit has already exceeded the full-year FY18’s core net profit of RM64.3 million.

It said revenue in 9M19 grew 17.5% year-on-year (y-o-y), driven by higher contributions from Automated Test Equipment (ATE) and Factory Automation Solutions (FAS) segments, which grew by 21%, and 3% respectively, according to the research house.

CGS-CIMB Research said the stronger ATE sales were driven by higher demand for smart sensor test equipment and 3D sensing flood illuminator and dot projector test equipment for the telecommunication sector.

Meanwhile, it said the group also delivered higher i-ARMS solutions driven by capacity expansion at the Batu Kawan plant.

It said Pentamaster’s core net profit fell 10.5% quarter-on-quarter from RM24 million in 2Q19 to RM21.5 million in 3Q19 mainly due to higher admin cost, which rose from RM11.6 million in 2Q19 to RM15.5 million in 3Q19.

“The group attributed the increase in admin cost to increases in staff’s incentive and remuneration expenses. We expect admin cost to fall back to the RM12 million level in 4Q19,” it said

In addition, Pentamaster posted a tax income in 3Q19, due to recovery in tax paid in 1H19, it said.

Moreover, according to the research house, the FAS segment registered a 106% y-o-y pretax profit growth to RM8.4 million in 9M19. Pretax profit margin nearly doubled to 17% in 9M19 (versus 9% in 9M18).

“The group attributed the earnings improvement to increasing adoption of automation technology, along with the prevalence of the Industry 4.0. The group is experiencing robust demand for its i-ARMS solutions and AMS modules across a wider spectrum of industries, especially in the consumer, industrial and automotive sectors,” it said.

FAS order book also surged to RM78.6 million in Sep 19 (versus RM24.9 million in Jun 19). The stronger order book growth was also driven by the completion of the acquisition of medical equipment provider TP Concept in Sep 19.

The research house also raised its financial year 2019-2021 forecast (FY19-21F) earnings per share (EPS) by 3-5% for better margin delivery from FAS and lower tax expense due to its pioneer status.

At 10.10am, Pentamaster rose 1.05% or 5 sen to RM4.80, valuing it at RM2.28 billion.

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